Key meeting signals stronger moves to balance risk prevention, growth

Updated:
Jul 25,2017 5:33 PM
Xinhua

BEIJING — While China’s better-than-expected growth data in recent months has prompted global institutions such as the IMF to raise GDP forecasts for the country, policymakers are calling for more attention to hidden risks in the economy.

In a meeting of the Political Bureau of the Communist Party of China (CPC) Central Committee on July 24, the Chinese leadership stressed that there were still contradictions and problems within the economy despite positive changes.

“Authorities should stay sober-minded and maintain strategic focus to address hidden risks and promote sustained and sound development,” said a statement released after the meeting.

Among the top priorities, the leadership said more market-oriented measures would be adopted to handle “zombie companies”— unprofitable firms burdened with debt, and local government financing activities will be further regulated to curb growth in hidden debt.

The latest emphasis on containing debt buildup showed strong resolve at the top level to defuse the long-standing threat, analysts said.

A recent report from the Chinese Academy of Social Sciences called for more effort against the growth of hidden debt, even though the government’s explicit leverage ratio is heading downward amid intensifying efforts to deleverage the economy.

In the first quarter of 2017, the Chinese government’s overall leverage ratio fell to 37.7 percent, down from 38.8 percent at the end of 2016, according to the report.

The leverage ratio of the central government stood at 15.7 percent, down 0.4 percentage point from last year, while that of local governments went down 0.7 percentage points to 22 percent.

Despite the drop, the report warned against growth of hidden debt disguised through financing channels such as government guidance funds and fake public-private partnerships.

Given the higher requirements on debt management and local government financing needs, authorities should further open the “front door” for fundraising, while strictly prohibiting borrowing through the “back door”, said Liu Shangxi, director of the Chinese Academy of Fiscal Sciences.

The meeting on July 24 also promised to correct irregularities in the financial sector, with strengthened coordination to make the financial sector better serve the real economy and guard against systemic financial risks.

Earlier this month, China announced that it would set up a committee under the State Council to oversee financial stability and development in order to address challenges brought by increasingly mixed financial services.

For the property market, another potential risk for the Chinese economy, policymakers pledged policy continuity and stability to foster a long-term mechanism to stabilize the market.

The message is that China will continue property control policies in the latter half of 2017 to prevent an inflation bubble while accelerating the development of rental market to meet public housing needs, according to Ren Xingzhou, an analyst at the Development Research Center of the State Council.

The guidance for economic work in the rest of 2017 came with the Chinese economy on steadier footing, with growth at 6.9 percent in the second quarter.